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Finance Masters




Constructing and Assessing Income Statements Using Percentage-of Completion;On March 15, 2012, Frankel Construction contracted to build a shopping center at a contract price of $120 million. The schedule of expected (which equals actual) cash collection and contract costs follow ($ millions);Year Cash Collections Cost Incurred;2012 $ 30 $ 25;2013 50 20;2014 40 40;Total $ 120 $ 85;(a) Calculate the amount of revenue, expense, and net income for each of the three years 2012 through 2014 using the percentage-of-completion revenue recognition method. Rounding instructions: Round percentages to the nearest whole number. Use rounded percentages for remaining calculations. Round revenue and income to the nearest whole number.;Percentage of Completion Method;Year Costs incurred Percent of total expected costs Revenue recognized Income;2012 $ Answer Answer % $ Answer $ Answer;2013 Answer Answer % Answer Answer;2014 Answer Answer % Answer Answer;$85 $120 $35;(b) Which of the following statements best summarizes our conclusion about the usefulness of the percentage-of-completion method for this company?;The percentage -of-completion method is not useful because it does not provide information about the total revenues over the life of the project. The percentage-of-completion method is an acceptable method under GAAP. The percentage-of-completion method does not provide a good estimate of the revenue and income earned in each period. The percentage -of-completion method is not useful because it is so dependent upon the completion estimate used by the company and can be easily manipulated.


Paper#77736 | Written in 18-Jul-2015

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